No one begins their career thinking that they will one day be a respondent in a Financial Industry Regulatory Authority disciplinary hearing, but the reality is that even a small lapse in judgment can lead to a career-killing sanction. Disciplinary penalties are designed, in theory, to take mitigating circumstances into account, but respondents should have a clear-eyed understanding of how mitigation arguments often face long odds.
FINRA’s approach toward disciplinary penalties is embodied in its Sanctions Guidelines, which are the starting point for a discussion of the sanctions aspect of FINRA’s enforcement regime. As a general principle, sanctions are supposed to be remedial, not punitive, and the Guidelines instruct hearing panels to fashion penalties that, while sufficient to deter future misconduct, are nevertheless appropriate after considering the facts of each case.
In that spirit, for many types of misconduct, the Guidelines suggest a range of possible outcomes. The possibilities can vary widely. As an illustration, the recommended sanction for excessive trading is a fine between $5,000 and $110,000 and a suspension of anywhere between one month to two years (or even an industry bar in the case of intentional churning).
Ranges like these are meant to give hearing panels the flexibility to tailor a sanction that accounts for the circumstances of each case, and the Guidelines lay out a number of factors that bear on the severity of penalties. These include the respondent’s prior disciplinary history; whether respondents have been disciplined already by other regulators or their employers for the same misconduct; whether the respondent voluntarily tried to remedy the misconduct prior to being caught; whether respondent engaged in misconduct over an extended period of time; and the size and nature of the transactions involved in the misconduct.
These factors are not the only things hearing panels consider when tailoring a penalty. The Guidelines discuss a number of other factors that apply to all cases, and they also include factors that apply to specific types of misconduct. In a forged signature case, for example, the Guidelines instruct hearing panels to consider, among other things, the nature of document that was signed. Importantly, the Guidelines are not meant to be exhaustive; on occasion, respondents successfully raise mitigation arguments based on factors that FINRA did not include in its guidance.
This flexible approach naturally gives hearing panels important leeway in tailoring an appropriate penalty, but this flexibility comes with a number of important caveats.